Salesforce surprised with Q2 earnings 📈 AI 'helping hand'?

Shares of software company Salesforce (CRM.US) gained nearly 6% after opening the U.S. session supported by Q2 results, but have since managed to give back much of the gains and are currently trading at 3.5% plus. The company beat analysts' expectations and is likely to benefit from AI due to its broad access to customer data. The biggest 'problem' seems to be the current valuation with PE ratios near 70 pct and 'forward PE' at 30 pct, which has probably prompted investors to reduce positions on the stock and be more cautious in the context of weaker macro data:

• Revenues: $8.60 billion vs. forecast of $8.53 billion
• Adjusted earnings per share (EPS): $2.12 forecast $1.90
• Operating margin: 31.6% vs. forecast 28.2%.
• Free cash flow: $630 million vs. forecast $445 million

Salesforce raised its outlook for fiscal 2024, counting on revenue in the range of $34.7 billion to $34.8 billion versus the previous revenue estimate of $34.5 billion to $34.7 billion (Wall Street expected $34.6 billion). The company's adjusted income from operations was more than $2.7 billion (77% year-on-year increase) vs. estimates of $2.42 billion. The company's CEO Marc Benioff communicated clearly that the company wants to reassert its leadership in innovative AI solutions over its competitors, and is making every effort to maintain that status with the interests of the company as well as its customers in mind. 

Macro pressure?

• Wall Street had unaffordable expectations for Q2, making it easier for the company to beat forecasts. On the other hand, results remained strong despite a mixed macroeconomic landscape. Analysts pointed out that the report was improved by better execution, not an improvement in business scale (which may well position Salesforce 'for better times');
• Citi analysts believe that while the results were good, the difficult macro environment will be a major challenge for the company in the face of lower business spending from multinationals. In their view, margin improvement is likely to have already reached 'the point of maximum' and accelerated growth or lower costs are unlikely at the moment and are the main challenge (although the company's position as an 'AI leader' may help here);
• Guggenheim analysts, on the other hand, expressed doubts about the company's forecasts because market circumstances do not reflect Salesforce's positive outlook for the second half of the year, which raises the possibility of negative disappointment if the company fails to reach its self-imposed higher revenue range. 
• At the same time, it seems that the company may become a long-term beneficiary of the AI trend due to the powerful scope of its customers' data. Stifel analysts raised their recommendation to $275 per share as a result.

Salesforce (CRM.US) shares, H4 interval. Source: xStation5